Putin has "legalized espionage" to strengthen military capabilities, experts say
In addition to the measures provided for in Presidential Decree No.29 of 28 February 2022 "On the application of special economic measures in connection with unfriendly actions of the USA and associated foreign states and international organizations", the President of the Russian Federation issued Decree No.430 on 20 May 2024, effective the same day.
The Decree establishes restrictions on the acquisition of IP rights by Russian persons from so-called “unfriendly” jurisdictions. The term “unfriendly” jurisdiction has been used in other countersanctions regulations and includes all foreign states that commit unfriendly acts towards the Russian Federation and Russian legal entities and natural persons (i.e., countries that have introduced sanctions against Russia, including the European Union, United Kingdom, and United States).
The Decree provides that any new contracts for the acquisition of IP rights by Russian residents or governmental bodies from unfriendly persons and persons controlled by such persons require clearance from the Governmental Commission and may be conditioned, including on the transfer of the payments for the IP to restricted O-type accounts. Funds may be withdrawn from such accounts only upon approval from the Governmental Commission. Pursuant to the Decree, the Russian government may impose other conditions for clearance in addition to these payment-related requirements.
Separately, the Decree provides that any payments under existing IP-rights agreements, including any late payments overdue as of the date when the Decree became effective must be transferred to restricted O-type accounts with Russian banks.
The Decree instructs the Russian government to issue regulations implementing the approval process. Specifically, the Decree instructs the Russian government to determine which federal ministry will be responsible for interpreting the Decree. Such ministry and the Central Bank of Russia (with respect to O-type accounts) will be authorized to issue official interpretations of the Decree.
The Decree does not apply to copyright agreements (i.e., agreements relating to the acquisition of IP-rights in scientific, literary and artistic works, sound recordings, broadcasting, and computer software) or transactions not exceeding RUB 15 million (c. USD 166,000. There is no indication that this is a monthly amount, so this is likely to be interpreted as any remaining amount to be paid under the relevant agreement. Interestingly, the Decree does not contain a typical exemption that foreign persons from unfriendly jurisdictions controlled by Russian residents and disclosed as controlled foreign companies are not considered “unfriendly” (and so are not within the scope of the Decree).
It is not entirely clear if the Decree applies to any transfer and use of IP rights, thus capturing any license agreements and payments thereunder, such as royalties, or only to “alienation” of IP rights (i.e., only to situations when the owner of IP rights from an unfriendly jurisdiction assigns the IP rights to a Russian person). The language of the Decree could be interpreted either way.
There are already Russian countersanctions regulations relating to IP rights. Presidential Decree No. 322 of May 27, 2022 provided for the possibility of freezing in O-type accounts of royalties payable to the licensors from unfriendly jurisdictions and certain other categories of licensors, including those that attempted to unilaterally terminate the licenses, but it is not entirely clear if any significant amount of funds has been frozen in O-type accounts under Decree No. 322. If the new Decree is interpreted to cover any royalty payments, the impact may be more significant. Around the date of the Decree, President Putin issued another decree that establishes the framework allowing the Russian government to seize any U.S. assets in Russia and funds in S-type and O-type accounts could be the first assets to be seized.
The implications of the new decree
Denis Grekov, a political scientist and former lecturer at the Russian Presidential Academy of National Economy and Public Administration (RANEPA), told The Media Line that the decree is essentially an open acknowledgment of Russia's severely outdated technological capabilities.
“It is a very candid statement that demonstrates Russia's extremely backward position in technology. This is evident anyway. Russia has some rather interesting weapon samples, which, nevertheless, still can hardly compete,” he said.
The war with Ukraine, which Putin started, shows this very well. The Russian army cannot boast serious successes. The only relatively decent thing they have is missile weapons and electronic warfare complexes. But, apparently, they cannot properly produce them without Western companies,” he said.
The decree also emphasizes the importance of conducting patent research during weapon design to ensure the competitiveness of new military equipment by evaluating existing technologies and market know-how.
This focus on patent research highlights Russia's intent to leverage existing global technologies to enhance its military capabilities swiftly.
Military expert David Sharp explained this to The Media Line: "When relations between different countries become very strained, there's less inclination to adhere formally to various norms or to feel embarrassed about it.”
“Putin has openly stated that all efforts must be directed toward ensuring the military operation, as he put it, is successful. If this requires acting demonstratively so that no one thinks about any patents, then why not?"
Sharp elaborated that industrial espionage for military purposes has been a strong point of Soviet intelligence since the 1920s.
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